Thesis--PlanB (M.S.)--University of Wisconsin--Stout, 2001. / Includes bibliographical references.

Two important findings in the IPO literature, IPO's underpricing and poor long run stock returns, are investigated by using the sample of IPOs completed in the Stock Exchange of Thailand (SET) from 1994 to 1999. The evidence suggests that Thai IPOs are underpriced and have poor long run stock returns. Rock 's (1986) model is employed to explain the underpricing of Thai IPOs. Rock's model is supported by the evidence of Thai IPOs. Past market conditions and the stock liquidity of the IPOs' industries are the main factors which affect investor demand for IPO shares. IPOs which go public in the hot market conditions (periods with high past market return) and IPOs which come from liquid industries (industries which have high stock turnover) attract more investor demand. These two factors are also positively correlated with IPO first day return. This suggests that investors have higher demand for IPOs which go public in the hot market conditions and IPOs which come from liquid industries because these IPOs are underpriced, and the underpricing of these IPOs is corrected during the first trading day. IPOs with low investor demand underperform their benchmarks in the long run. On the contrary, the long run returns of IPOs with high investor demand are not significantly different from their benchmarks. One possible explanation for the underperformance of IPOs with low investor demand is that these IPOs may be illiquid. The lack of demand during the first trading day may cause their first closing price to be different from their intrinsic value. This difference is gradually adjusted in the long run leading to the underperformance of these IPOs. This hypothesis is supported by the evidence. The sample of rights offerings announced in the SET between 1994 and 1999 also supports the role of liquidity in explaining the poor long run performance of issuers. The change in operating performance of IPOs from the IPO-year to the post-IPO years also has some power in explaining the long run underperformance of IPOs. IPOs which perform more badly after going public have poor long run returns.

Two important findings in the IPO literature, IPO's underpricing and poor long run stock returns, are investigated by using the sample of IPOs completed in the Stock Exchange of Thailand (SET) from 1994 to 1999. The evidence suggests that Thai IPOs are underpriced and have poor long run stock returns. Rock 's (1986) model is employed to explain the underpricing of Thai IPOs. Rock's model is supported by the evidence of Thai IPOs. Past market conditions and the stock liquidity of the IPOs' industries are the main factors which affect investor demand for IPO shares. IPOs which go public in the hot market conditions (periods with high past market return) and IPOs which come from liquid industries (industries which have high stock turnover) attract more investor demand. These two factors are also positively correlated with IPO first day return. This suggests that investors have higher demand for IPOs which go public in the hot market conditions and IPOs which come from liquid industries because these IPOs are underpriced, and the underpricing of these IPOs is corrected during the first trading day. IPOs with low investor demand underperform their benchmarks in the long run. On the contrary, the long run returns of IPOs with high investor demand are not significantly different from their benchmarks. One possible explanation for the underperformance of IPOs with low investor demand is that these IPOs may be illiquid. The lack of demand during the first trading day may cause their first closing price to be different from their intrinsic value. This difference is gradually adjusted in the long run leading to the underperformance of these IPOs. This hypothesis is supported by the evidence. The sample of rights offerings announced in the SET between 1994 and 1999 also supports the role of liquidity in explaining the poor long run performance of issuers. The change in operating performance of IPOs from the IPO-year to the post-IPO years also has some power in explaining the long run underperformance of IPOs. IPOs which perform more badly after going public have poor long run returns.

This study examines two interrelated but separate issues: cross-sectional predictability of equity returns in the Stock Exchange of Thailand (SET), and transmission of stock market movements. The first essay empirically investigates to what extent the evidence of three major documented stock market anomalies (earnings-price ratio, firm size, and book-to-market ratio) can be generalized across national stock markets. The second essay studies the price and volatility spillover effects from the New York Stock Exchange (NYSE) to the SET. The first essay, using the Fama-Macbeth procedure and the pooled time-series cross-sectional GLS regressions, finds a weak relation between the beta and average stock returns. The adjustment of estimated beta for the effect of thin trading does not change the implications of the results. Of the three anomalies investigated, the size effect has the most prominent and consistent role in explaining average returns. For the earnings-price ratio, the results indicate that the significance of the E/P ratio variable persists only if the nonfinancial firms are considered. In contrast to the previous empirical results for the U.S. and Japanese stock markets, the book-to-market ratio fails to explain the SET equity returns. The second essay employs a generalized autoregressive conditionally heteroskedastic (GARCH) model with conditional t-distributed errors to investigate the spillover effects. No evidence of price spillover effects is found for the full sample period. However, the spillover effects are significant during the period in which the Federal Reserve Board raised interest rates. Further examinations reveal that information inferred from price changes in the U.S. market influences only the opening price in the SET, not the open-to-close Thai stock market returns. This implies that price in the SET is informationally efficient with respect to the price determined in the U.S. stock market. The evidence is generally supportive of international financial integration and informational efficiency in the Thai stock market.

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